Monti group advisor: EU money could be better targeted at external borders

Dr. Giacomo Benedetto [EURACTIV Slovakia]

Instead of punishing member states that refuse to accept refugees, there could be improved compensation for those that accept refugees, and manage their resettlement, Dr Giacomo Benedetto told EURACTIV Slovakia in a wide-ranging interview.

Dr Giacomo Benedetto is, Jean Monnet Chair, Senior Lecturer at Royal Holloway, University of London and a co-author of the study on the Potential and Limitations of Reforming the Financing of the EU Budget prepared for the EU’s High Level Group on Own Resources.

Benedetto was interviewed by Editor Andrej Furik.

The Monti group has presented several options for new own resources for the EU budget. Is there a preferred single option, or is a combination of several resources envisaged as a replacement for the current system of member state contributions? 

At present, the budget is financed through revenue from the external tariff and a proportion of the value added tax (VAT) collected throughout the EU. Depending on the year, these provide approximately 25% of the money foreseen in the EU’s budget. The rest (or residual) is made up from what you have described as member state contributions, an equal proportion of each country’s gross national income (GNI) minus the rebates – reductions to countries that are deemed to have over-contributed. This residual of national contributions will remain, though it should be smaller as new Own Resources provide more finance for the budget.

As for new Own Resources, there is no favourite. In the end it will be a matter of political agreement between raising finances on energy or CO2 consumption, corporation incomes, financial sector levies or transactions taxes, or a new form of VAT levy. These would be consistent with EU policy on energy union and climate change, the internal market, combatting tax avoidance, or regulation of the financial sector.

Is Brexit really the door-opener for the reform? What about opposition from other states?

It is the opener of one door, but other doors may also need to be opened. The report anticipates the perception that a reform of own resources would lead to a larger budget, which many member states would oppose. The report is clear that new own resources would reduce the level of transfers made from national contributions (on GNI) as the value of finance raised from other sources increases. A reduction in GNI-based contributions will allow member states to increase domestic spending or reduce taxation for example.

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The EU budget should become more transparent or other countries will follow the UK’s example. But Brexit also provides an opportunity to get rid of all rebates, which nobody can actually explain, Ivailo Kalfin, member of the Monti group on …

Reform of the system of budget resources requires unanimity as well as ratification by all member states. It is therefore logical to expect a sort of package deal to be presented. What can member states who now oppose a reform get in return for their yes vote?

Current budgetary negotiations and disagreements are very costly for the European Union and member state governments, both economically and politically in terms of the goodwill that is at risk. The right reform, including changes to the types of expenditure in favour of collective gains, for example in what Europe can provide more effectively than member states –  investment in research and innovation, or in satellite systems that improve communication as examples – can be less costly for all member states. This is particularly the case when expenditure is seen not just as a transfer to a member state that “benefits”, but as an investment that generates gains for all, via for example improved satellite technology or energy security.

It is possible that some new Own Resources may disproportionately affect specific member states, for example those heavily reliant on carbon-based energy in the event of agreement on an Own Resource derived from CO2 consumption. In this case, compensation packages that reflect such a high gross rather than net contribution may be considered. Such compensation could be linked to the respective member state investing in areas prioritised by EU policy, perhaps in cohesion or energy security, rather than direct compensation from the sector affected by the Own Resource, in this case carbon.

Mario Monti often reiterates, that as fiscal competence is exclusively at national level, we cannot speak of an “EU tax”. How big should be the EU’s share of the revenue from potential new tax(es), given that these will be designed by the EU?

There is no upper limit. In the event that new Own Resources deliver to the EU more than the current budget’s spending level of 0.95% of GNI, the over-supply of funds can be remitted back to member states. In other words, the total size of the EU’s revenue would remain the same, unless all member states agreed otherwise.

With the departure of the UK, politicians from other budget-sceptical member states have made clear that they are not preoccupied about net balances – how much they get from the budget compared to what was contributed. Their concern is simply to keep the budget low.

Monti group challenges the ‘juste retour’ principle in EU budgeting

The ‘Monti group’ will propose new ways of budgeting for the post-2020 period on Thursday (12 January), challenging the principle of ‘juste retour’, and looking at the opportunities of abandoning the UK rebate, according to a draft report seen by

Would it not be easier to design a “proper” EU tax, considering unanimity rules will apply either way?

This is not possible without a reform to the EU Treaties. It may be possible to design a new Own Resource where member states decide to delegate collection to the European Commission or an EU agency. This is already the case with competition fines.

The issue of own resources is closely tied to the broader issue of the future of the EU budget. What do you think will be the main changes in the next MFF? Can we expect radical changes of the current heading system?

It remains to be seen if the heading system will change. There is great demand and economic sense to expand investment in Competitiveness (research and innovation, education, the satellite programme, nuclear research, Connecting Europe, etc) and on Security and Justice, which includes asylum and refugee policy.

Expenditure on cohesion and agriculture is likely to remain relatively protected but could still be reformed to provide greater added value. It is important to note that expenditure on cohesion and agriculture was reduced slightly at the start of the multiannual spending programmes of 2007-2013 and 2014-2020, so further modest reductions may be possible to the benefit of investment in Competitiveness, and Security and Justice.

What about a separate budget for the eurozone? Is it an alternative or a part of Plan A for the EU budget reform?

It is on the table and is being demanded by interests outside Mario Monti’s High Level Group. Such a budget would be limited to eurozone issues, such as management of the bail-out funds and other instruments of macro-economic stabilisation, but may also include investment in growth policies within the eurozone only.

What is your view of the Italian proposition to cut EU funding for countries that refuse to take in migrants? 

I cannot comment on whether this would be possible legally. A more agile budget financed through an improved resources system and not beholden to national preoccupations about net balances may be better placed to respond to challenges like the unequal burden in the management of refugees.

Rather than punishment for member states that refuse to accept refugees, there could be improved compensation for those that accept refugees and manage their resettlement. Likewise collective EU money could be more effectively targeted at managing the EU’s external borders if a reform of Own Resources allows for more flexibility and agility within the budget.

European Parliament kicks off ‘own resources’ group

The current leaders of the three main EU institutions launched yesterday (25 February) a high-level group on EU "own resources" to be chaired by the former prime minister of Italy, Mario Monti.

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